Challenges and opportunities of central bank digital currencies
Source:
Social Science Research Network - SSRN
This is a scientific study of the impact of stablecoins on central bank digital currencies. The purpose of this study is twofold, to survey the financial literature on digital assets, specifically stablecoins, and to study the interdependence of stablecoins in financial markets.
This research is authored by researchers Jaewon CHOI and Hugh Hoikwang KIM.
To back up their statements, in addition to a literary survey and analysis, the researchers have added an analysis of case studies such as the fall of Terra-Luna and Silicon Valley Bank.
Drawing on previous research, the authors begin by introducing the subject, summarizing the characteristics, advantages and disadvantages of blockchain technology.
Divided into 3 subsections, the authors address:
- The economics of blockchain technology;
- The valuation of digital assets;
- Tokenized assets and security tokens.
Concerning the literature review of the impact of stablecoins on central bank digital currencies. This part is divided into 3 subparts:
- Stablecoins and Financial Stability;
- Central Bank Digital Currency
- Prospects for Digital Assets and Stablecoins
In the 1st subpart, Stablecoins and Financial Stability, the authors focus on the technical (collateral-backed and non-collateralized) and financial characteristics of stablecoins.
The authors also discuss the impact of stablecoins on financial markets and on the decentralized finance transaction system (DeFi).
After developing the technical and financial characteristics of stablecoins, the authors tackle several subtopics in this 2nd subpart, Financial Stability. First, the advantages and disadvantages of using stablecoins as fiat currency.
Using case studies (e.g., TerraUSD - UST), the authors discuss the volatility of stablecoins, particularly algorithmic (non-collateralized) stablecoins, in the event of a simultaneous mass liquidation of stablecoins.
Secondly, the authors address the risk of the cryptocurrency market spreading to the traditional financial market.
And to conclude this subpart, the authors discuss the various regulatory systems available to avoid any financial risk on the 2 types of financial market.
In the 3rd and final subpart, Prospects for Digital Assets and Stablecoins, the authors discuss the challenges facing stablecoins and digital currencies, especially since the collapse of Silicon Valley Bank.
Bibliography: (text APA)
Jaewon CHOI and Hugh Hoikwang KIM, Stablecoins and Central Bank Digital Currency: Challenges and Opportunities (March 12, 2024). Oxford Research Encyclopedia of Economics and Finance, Forthcoming.
Available **at SSRN**: https://ssrn.com/abstract=4756822 **or** http://dx.doi.org/10.2139/ssrn.4756822